Reforming the Market Economy

The think-tank “Centesimus Annus Pro Pontifice” has just published a document on a reformed economy. Newsboook is publishing it here in two parts.

Introduction

Two months in his papacy in May 2013, Francis provoked the assembly of members of the Vatican socio-economic think-tank Fondazione Centesimus Annus Pro Pontifice (www.centesimusannus.org) at a private audience in Sala Clementina at the Apostolic Palace in the Vatican to come up with recommendations on how the market economy can be reformed to be sensitive to the needs of the poor and the marginalised while retaining the spark for creativity and innovation that are so necessary for human development. The Foundation took the challenge by organising a series of conventions, round-table discussions and meetings in Rome, Dublin, London and New York attended by a long list of Christian and non- Christian economists, sociologists, philosophers and politicians searching for a reformed model of the economy which will reflect the principles and practice of Catholic Social Teaching which is accepted globally as feasible way to promote a humanised economy. Josef Bonnici, the Governor of the Central Bank of Malta participated in meetings in Rome and Dublin, Lawrence Gonzi, former Prime Minister of Malta, participated in the international convention in Rome, and the economist Joseph F X Zahra, council member of the think-tank, contributed in all these preparatory meetings.

Newsbook is publishing the final document “A Reformed Market Economy: Entrepreneurship for Human Development” in two parts. This document has been launched at the Vatican at the end of February 2015, and has been presented to Pope Francis and the heads of the various congregations. The summary of the meetings held between September 2013 and October 2014 can be found on the think-tank’s websitewww.centesimusannus.org.

A REFORMED MARKET ECONOMY:

ENTREPRENEURSHIP FOR HUMAN DEVELOPMENT

PART ONE

When Pope Francis says ”thou shalt not to an economy of exclusion and inequality - such an economy kills”, all those who are professionnally involved in economic life may feel directly concerned; in good faith many will probably accept to put their active life under review and try to understand what concrete steps it takes, not only to say “No to an economy of exclusion, to the new idolatry of money, to a financial system which rules rather than serves, to the inequality which spawns violence…” (Evangelii Gaudium, chapter two), but to effectively promote reforms which support inclusion and dynamic solidarity. This is what members and friends of the Fondazione Centesimus Annus have done during 2014; the present document is a brief summary of their findings*.

GENERAL FRAMEWORK

The world-wide demand for transparency constantly brings cases of bad practice and wrongdoings in economic life and finance to the knowledge of the public; although this can be considered a positive trend, it contributes however to increase a gap in trust between economic actors and public opinion, where the whole is often taken for the part and a general negative judgment is made on the market economy.

*Summary of meetings held from September 2013 to October 2014. Full presentations and reports can be found on the Foundations website (www.centesimusannus.org).

In the meantime, ambitious regulatory reforms are being promoted in the Western economies, partly through supranational governance bodies, especially in the financial sector; simultaneously, a wide-ranging movement towards responsible economic behaviourand sustainable use of resources is transforming many areas of business. These too are positive trends, but they require a stronger human and ethical direction: the vision of Catholic Social Teaching can contribute to make the new frameworks creative and positive for all.

Wherever the rule of law is not respected and, even more, wherever the economy lacks an essential ethical reference, it is almost always the poorer part of populations who pay the highest price. Those who are less protected pay the price of corruption; they often pay the price of protectionism and egoistic defensive strategies; they pay the price of inefficiency in public administration and they suffer the consequences of economic mismanagement and crime. There is no simple definition of poverty, there are many ways of being poor and Christians have tried to understand poverty and be close to the poor for centuries. Now the emphasis changes:reforming the market economy against some of its ills is an urgent task, also from the point of view of the Christian preferential choice for the poor.

Experience shows that economic development, driven by entrepreneurship and practical innovation at all levels, is the key driving force to reduce poverty. Economic growth may generate winners and losers and this requires specific action to help the poor help themselves. But development and the market with sound economic policies are the only contexts in which poverty has been effectively reduced in large numbers.

The economy of abundant consumption and extensive services creates new needs and produces new tensions within the traditional ethical frameworks. The commitment to family life, the responsibility to act for the purpose of the common good, the learning process to seek the true good life are permanent demands of human development which economic growth does not solve by itsef. The role of Christians here is to rethink and develop new answers and proposals, so as to translate the permanent principles of the primacy of the human person, subsidiarity and solidarity and the common good into actions which may be effective in the world of today.

The role of the public institutions (Supranational, State, Regions…) is essential to set the framework for sound economic policies, and the market economy can prosper in different institutional environments. The essential condition is that entrepreneurial initiative is free to develop and can apply itself to human development. This is true for business and jobs, but also for social and civic projects: both sectors need systematic management expertise, transparency and good governance.

In poor countries, as a complement to general economic policies introduced from the top, there is immense potential for applying entrepreneurial management systems to the construction of development projects starting from the bottom of local communities. Good governance practice, transparency rules, the latest communication technologies, well-managed microfinance, the integration of supply chains are elements which can transform life for whole communities. A participative approach will allow the people involved to freely control their own economic future as families and groups.

In rich countries, where welfare systems proved generally resilient during the recent crisis years, the competition from new and efficient productions in low-middle income countries has contributed to wage stagnation, a pressure to reduce labor cost and the increase of unemployment, precariousness and poverty in the midst of abundance. In this context it is essential to rediscover that work and job satisfaction are basic needs. The wrong education policies and inflexible labour rules generate casual, short-term jobs as well as inadequate qualification for available jobs, and they can lead to persistent unemployment. Relying only on centralized and impersonal public programs may induce a “welfare trap” which can lead to social exclusion. A sustainable answer to these ills requires a renewed understanding of labor and virtue, in contrast to the two extremes of market individualism and state interventionism, where economic effort and civil courage are prized, and where both responsibility and power are devolved to the most appropriate level consistent with human flourishing.

A ROLE FOR SOLIDARITY IN BUSINESS DECISIONS

Every economic decision involves a degree of solidarity, the same way as any human act: human persons are a totality, inserted in a network of relations, where gift and fraternity in fact co-exist with the natural yearning for individual satisfaction. And business decisions are made by real humans.

Entrepreneurial initiative never relies only on personal greed. Against many cases of mismanagement, corruption and lack of accountability – which are permanent temptations of economic life – it is also possible to build areas of the market economy which serve directly the common good, based on a positive moral culture centered on the dignity of the person and the value of labor.

Develop a corporate culture of service to society

Putting business enterprise to the service of common good is not primarily a question of legal ownership structures, but rather a cultural fact which permeates all corporate policies from investment to product design, from the use of resources to sales policies, from personnel management to financial plans. This requires investing in a corporate culture of solidarity balanced by subsidiarity, with management taking the lead and giving example.

Promote intermediate bodies

To foster these ideas, all those who have the capacity should promote or participate in intermediate bodies which autonomously sustain solidarity and contribute in practical terms to harmonize concepts and interests that would otherwise be in conflict. There actually are a growing number of foundations and charitable associations, some of them initiated by business; this positive trend in turn creates a need for transparency and independent evaluation systems so as to avoid abuse and inefficiency, and to encourage the good use of charitable initiative.

Connect entitlements with duties

Losers in economic growth need special protection and added opportunities, but it is crucial to connect rights and entitlements with obligations and duties. To be sustainable, welfare systems must link work and apprenticeship with receiving a benefit.

Decentralize mutual help

Both in low income countries and in developed economies, redistribution through income tax and social insurance schemes are essential. But there is a danger of nurturing a passive attitude and excessive dependence on the public sector. A real alternative can be found in many existing or in new decentralized mutually helpful schemes which combine universal entitlement with personalized provisions; these should be actively supported by business and accompanied by suitable legal and tax arrangements.

Build on co-responsibility at corporate level

In the present crisis co-responsibility has materialized often through solidarity contracts which allow a company to avoid failure or catastrophe restructuring. This can be developed in the form of inclusion of all people working in and around a company; it requires transparency to allow risk sharing and establish proportionate rewards among employers and employees, but also among investors and owners, shareholders and managers, lenders and borrowers, producers and consumers, in a free and flexible legal context.

Promote apprenticeship and transitional monitoring

Following best practice in some European countries where unemployment remains low, a wider effort is needed, also through dedicated tax breaks and lower contribution to social security, to diffuse programs of apprenticeship and transitional mentoring for the youth where young employees are hired at lower salaries and paired up with elder employees who can provide mentoring and training to the next generation.

Develop inter-generational solidarity systems

The dangerously over-sized volume of private and public debt in rich countries is growing more than investment. Thus the debt passed on to the next generations, at least partly used for present consumption, may become a net burden without the compensation of lasting equipment. There is need for reintroducing the long term perspective through new initiatives bringing the young in contact with the old, thus fostering full participation of different generations in a new social ethos open to solidarity.